Topshop Owner Arcadia to Shutter US Stores Amid Insolvency Woes

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Article by Daphne Howland

Dive Brief:

  • Arcadia Group, which in the U.S. runs its Topshop and Topman brands and in the U.K. and Ireland also runs Dorothy Perkins and Miss Selfridge, among others, could shutter all 22 of its U.S. stores, according to multiple media reports and documents filed Wednesday with the United States Bankruptcy Court Southern District Of New York.
  • The London-based company will also close at least 23 stores at home, although it will likely be at least double that, according to a report from U.K. newspaper The Guardian. Arcadia Group didn’t immediately respond to request for comment
  • The conglomerate doesn’t usually reveal financial details, but in documents sent to its landlords in recent days Arcadia said its total comp sales fell 9% in its last fiscal year, and that even after cutting 70 million pounds in expenses last year it can’t afford its 170 million-pound annual rent bill, according to the Guardian’s account.

Dive Insight:

Apparel retail is tough on a good day, but adding financial improprieties and sexual harassment claims spells doom. The conglomerate’s ability to withstand everyday retail challenges plus uncertainties introduced by the so-called “Brexit” plan for the U.K. to leave the European Union has been undermined by its billionaire chairman, Sir Philip Green, who has piled it with debt and whose personal behavior has lost it key partnerships.

That’s the situation that Arcadia and its brands find themselves in, as the conglomerate’s operations unravel. Some problems, like financial issues related to contributions to the company’s pension fund and insufficient investment into its operations, go back years, while others are more recent. Last year, for example, after a member of Parliament surfaced allegations that Green had committed sexual harassment and other abuses, covering them up through non-disclosure agreements, Arcadia brands were dropped by partners that once served as a sign of their success. Beyonce, for example, severed the 2014 tie-up she had forged between her Ivy Park brand and Topshop.

The pension fund deficit threatens to endanger regulators’ ability to approve the company’s U.K. restructuring plans, according to a Thursday letter to Green from the chairman of the House of Commons Work and Pensions Committee. Those plans, known in the U.K. as a “company voluntary arrangement (CVA)” wouldn’t be sufficient to save the company’s brands in any case, according to data and analytics company GlobalData.

“The proposed closure of only 23 UK stores (4% of its current UK estate) and rent reductions at 194 stores, as part of its CVA, will not be enough to save Arcadia in a world where rising online sales continue to threaten the high street,” GlobalData Senior Retail Analyst Chloe Collins said in comments emailed to Retail Dive. “The closures would leave a large portfolio of 543 stores remaining, and with only £50m to be invested as part of the proposal, any attempt to pay for an increase in store standards would be spread too thinly to make up for years of underinvestment.”

A recovery seems distant. “For Arcadia to survive, Green must revamp its brands; ensuring they have a clear target audience, a point of difference from competitors, and enhanced digital platforms,” Collins said.

But that’s a tall order. Much of the portfolio has “lost relevance in today’s retail landscape due to their uninspiring fashion ranges and weak multichannel offer,” she also said. “Even Topshop, which used to be Arcadia’s star player, has lost appeal among fashion shoppers thanks to tough competition from the likes of Zara, Primark and H&M, as well as online pureplays such as ASOS, PrettyLittleThing and boohoo.com.”

 

Article by Daphne Howland

Adidas Shares Hit Record as Ecommerce Boosts Profits

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Article by Emma Thomasson – Partnerwise

BERLIN (Reuters) – Adidas reported a forecast-beating rise in quarterly profits on Friday, helped by booming online sales, and said it hoped to fix supply chain problems in the North American market and revive growth in Europe by the end of the year.

Shares in the German sportswear maker, which have risen by a quarter this year, jumped 7 percent to a new record high, with the sector also buoyed by Under Armour Inc raising its full-year earnings forecast on Thursday.

The group’s profitability has long lagged that of bigger rival Nike, but has improved under Chief Executive Kasper Rorsted, who has focused on expanding in North America and Asia and pushing online sales, where margins are higher than wholesale.

In the first quarter, Adidas said its operating margin rose 1.4 percentage points to 14.9 percent, pulling ahead of Nike which recorded an operating margin of 13.5 percent for the December to February period.

“Earnings are much better than guided for the full year – leaving the door open for margin guidance upgrades in the course of the year 2019,” said Baader Helvea analyst Volker Bosse, who rates the stock “hold”.

Adidas is chipping away at Nike’s dominance of the U.S. market, pushing retro styles that have proved more popular than Nike’s basketball shoes, and teaming up with celebrities such as Kanye West, whose Yeezy line has driven recent strong growth.

Adidas announced last month it is partnering with singer Beyonce, which Rorsted said on Friday would have a “tremendous impact”, noting that the deal generated 1 billion online views, with the first products due for launch later in 2019.
ONLINE BOOM

First-quarter profitability was helped by lower sourcing and marketing costs, favorable currency developments as well as selling more higher priced products and the expansion of online, with ecommerce sales up 40 percent in the quarter.

Rorsted told journalists ecommerce had grown fast in all regions, helped by exclusive launches of new products and the fact the Adidas app has been downloaded 9 million times. He expects online growth to continue at 30-40 percent for years.

Overall, sales growth slowed in the first quarter to a currency-adjusted 4 percent rise to 5.883 billion euros ($6.57 billion), but was still ahead of analyst consensus.

Adidas had already warned in March that supply chain issues would hit sales growth in the first half, citing particular problems meeting North America demand for mid-market clothing.

Adidas said it was working to mitigate the shortages, including using more air freight to ship goods – implying higher logistics costs in the second and third quarters – but Rorsted said the problems should ease by the end of the year.

He also expects a recovery by then in Europe – where revenue fell 3 percent in the first quarter, as Adidas seeks to reduce its reliance on its Originals fashion line and boost sales of sports performance gear, with new product launches.

Sales of soccer jerseys ahead of the 2020 European soccer championship should have their first positive impact in the fourth quarter, Rorsted added.